Sunday, March 03, 2013

Entrepreneurs add the value, Governments take taxes

In 2003 public (government) revenue was projected to be $901 million dollars, with expenditures of $1.1 billion. Fast forwarding to 2012, if my figures are correct, it looks like revenue was projected at $1.5 billion and expenditures at $1.7 billion.

In other words in about ten years we've seen almost a doubling of government expenditures and a projected increase in revenue of only about 50%.

Obviously the numbers don't add up. Deficits and borrowing have been the order of the day for decades now.

Sure the Minister of Finance recently indicated they would get serious about cutting spending and I'm hopeful but not confident that we will see reductions in government spending. The recent "uprising" at the College of The Bahamas when they were advised their budget would be cut is one reason why I don't think they will materialise. Once governments grant favours to some at the expense of "everyone", a complete economic collapse (à la Greece) seems to be the only way to reduce them.

The recent "debate" over budget cuts both here at home and in the US are eye openers. Heck one US Representative indicated a 3% cut in the US Government budget would lead to a loss of 170 million jobs (mind you it's estimated there are only 135 million workers in the US). It was simply an attempt to convince (read frighten) citizens that the proposed cuts are draconian.

Meanwhile the private sector has had to cut costs where possible to stay afloat for years now.

So governments primary answer is to find more tax revenue, not decrease spending.

And now the nation is told a Value Added Tax (VAT) will be introduced in 2014 because the tax base needs to be broadened. We hear government officials, and others, explaining that the professional classes are not taxed so a VAT is how to do it. Of course the consumer will simply pay more for goods and services.

In other words, those workers and citizens that have had to cut back on their standard of living to make ends meet will have to pay even more.

Obviously taxes do not add value, so the only thing a value added tax could mean is entrepreneurs create the value and governments take taxes.

I'm reminded of this quote from US Chief Justice John Marshall:

"The power to tax involves the power to destroy;...the power to destroy may defeat and render useless the power to create...."